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Beginner Business Mistakes

After starting a few businesses I’ve become familiar with a lot of common mistakes that entrepreneurs make when starting a new business. Mistakes are inevitable (sometimes even desirable – more on that another time) but at the very least you can make new ones. Here’s a list of common mistakes you can avoid when you start your new business, whether you’re on a shoestring budget or funded by rich and optimistic investors.

The List

Trying to start too big.

Keep growth organic by putting no more in place than you need to. Start with a direction and a plan, but realize that most of the planning you do today will seem wildly imaginative two years from now. Stick to what you know.

Wanting to seem too big.

I’ve seen so many new businesses try desperately to seem and feel like they’re bigger than they are. It’s the “perception is reality” deception. Do you really need that downtown office today? Chances are, it won’t draw clients as much as great work and word of mouth will.

Letting anything come before revenue.

By this I mean two things.

Time. The very first thing you should do is to make sure you have a product and customers.
Get out the simplest excellent product you can provide, and find customers for it, before you do anything else. Until you are selling a product to customers, you don’t have a company, just an unpleasant, expensive hobby. This is especially dangerous when you have a lot of investment money.

Priority. At the end of the day, revenue is simply the way you tell how well you’re satisfying your customers, so nothing’s more important than this.

Trying to be everything to everyone or trying to do too many things.

Ok, you’re in business and you have no money. So any work that comes along is good, right? Not quite.

Beware of accepting work too far from your core business. Every category of work you do carries a certain overhead, whereas when you’re doing a lot of similar work you can streamline processes and get economies of scale.

Also, recognize that when you do work outside your core business, you don’t increase the value of your business nearly as much. A design shop that is known for amazing, innovative web development will get much better business and word of mouth than a company that is known to have done merely average work in logo design, web design, and programming.

Caring too much about the business plan.

It’s important to have some sense of direction, but the only reason you need a full, formal business plan is when you’re trying to beg for money from someone. Otherwise, your business plan only needs:

A brief market analysis

Cost analysis

Most business plan revenue projections fall between “sardonically witty” and “slapstick humour.”

Starting a business with friends.

Some people say this is because friendship and business don’t mix. I say it’s for two other reaons:

Most people don’t know how to do business with their friends. Business with friends requires even more work. There’s a tendency to say, “we don’t need to worry about that, we’re friends.” Running a business with friends is the best way to discover how different your values, goals, skills and work habits are! On top of that, you have your friendship to manage at the same time.

Usually, people don’t go into business with their friends for the right reasons. Typically they choose their friends as business partners because they already get along and have things in common, rather than because they can make a business partnership. Beware of starting a business with friends who are too similar to you–you’ll both want to do the same jobs. Instead, find someone who complements your strengths and weaknesses.

Equal partnerships.

The only way an equal partnership can work is if there are only two partners, and they complement each other very well–such as an outgoing sales and marketing guy with a software whiz who spends all her time behind a computer screen. Usually equal partnership is a euphemism for “constant arguing.”

Any bizarre revenue-sharing scheme.

I’ve seen a number of new companies try to work ways of handling inequality in the amount of work done by partners, by creating some kind of bizarre revenue-sharing scheme. This problem has already been solved. If you have a registered partnership, then you are equal partners, period. If you are incorporated, then it’s mostly a question of who has how many shares. To reward hours spent working in the company, pay wages or salaries, even very modest ones. If you feel that this isn’t enough to reduce the inequality of different partners’ time and effort contributions, then you’re
in business with the wrong people and that is your real problem. Hint: in a healthy start-up, nobody pays much attention to how much work the others are doing, or how much they’re being paid, because they’re all too busy working.

Some of the founders work full-time and some part-time in the company.

This is a recipe for disaster! Not only does it create instant inequality, but it also goes against a fundamental entrepreneurship value: if you’re not willing to invest yourself completely in a business, you shouldn’t be trying to run one. Get a day job and let the real entrepreneurs do their thing! If someone is willing to invest financially as a “silent partner” without participating in the day-to-day, that’s great–as long as they stay silent! The only people who should be working part-time in your company are your part-time employees, which is often a great way to transition from a company where the owners do all the work, to a company operated mostly by employees.

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